This paper focuses on explaining the facilitative factors of nurturing innovation in the developing economies. The paper is developed solely from literature and it defines innovation in various conceptualizations from both developed and developing world and their underlying assumptions. It aimed at highlighting the challenges and key policy choices for innovation. The findings lead to the conclusion that, though incremental innovation can be easily managed in developing countries, it can spray vast innovations if right policy choices of innovation options are done. Choices of marketing, service and organizational innovations; social capital for interactive relations and diversity management; improved education systems; crafting of innovation systems; increased gross domestic expenditure on research and development (GERD); and promoting the role of various innovation actors in dissemination of knowledge and R&D results. Increased GERD have facilitated generation of innovations and improved economies for many countries such as that of South Africa and Brazil. Further, in a contextual understanding and analysis this paper affirms the paradigm shift from “system of production” to the “system of innovation” and it opposes the paradigm shift from “traditional” to “high tech” sectoral engagements.

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